U.S. stocks rise on Caterpillar, deals, Europe

Nasdaq Composite reclaims gains for 2011; Dow up for 3 days

By

V.Phani Kumar

LauraMandaro

NEW YORK (MarketWatch) — U.S. stocks rallied Monday as Caterpillar Inc.’s upbeat results and some merger-and-acquisition deals pulled in buyers against a backdrop of optimism that Europe’s leaders will reach a deal to arrest the region’s debt crisis.

“When there is a break in the European debt crisis, the economic data begins to speak through and earnings begin to speak through,” said Stephen Wood, chief market strategist for North America at Russell Investments.

The Dow Jones Industrial Average
DJIA, -0.67%
rose 104.83 points, or 0.9%, to 11,913.62, completing a three-day winning streak. Also clinching a third straight day of advance, the S&P 500
SPX, -0.55%
gained 15.94 points, or 1.3%, to 1,254.19.

The Nasdaq Composite
COMP, -0.22%
added 61.98 points, or 2.4%, to 2,699.44, erasing year-to-date losses. The index’s reentry into positive territory — up 1.8% thus far in 2011 — was aided by a 3.3% rebound in shares of Apple Inc.
AAPL, -0.45%
after the iPhone maker suffered three successive days of losses. Read more on tech stocks.

A bulk of the Dow’s gains were contributed by shares of Caterpillar Inc.
CAT, -0.21%
which advanced $4.38, or 5%, to $91.77 after the equipment maker reported a jump in earnings, topping estimates, and guided analysts to the top of its range for full-year earnings per share. Read more on Caterpillar.

The market breadth was overwhelmingly positive, with nearly five stocks rising for every decliner on the New York Stock Exchange, where 927 million shares traded hands. NYSE composite volume was 4.3 billion.

Stocks added to their early gains after the Associated Press and other media reports cited German opposition leaders as saying, following a briefing with Chancellor Angela Merkel, that the euro-zone bailout fund’s firepower was set to be enhanced to more than 1 trillion euros ($1.39 trillion) through leverage.

Wood said that while the U.S. economic data hasn’t been great, it was signaling that the nation wasn’t entering a recession. Going into 2012, the market was likely to be a “stock picker’s market,” as opposed to the “risk-off, risk-on” mode investors have been in the past several quarters as a debt crisis raged in Europe, he said.

On Sunday, European leaders meeting in Brussels said they were making progress toward a broad plan to deal with the euro zone’s debt crisis, including recapitalizing European banks, but left the details for a second summit scheduled for Wednesday. Read more on EU summit.

Stocks have been highly sensitive to indications that European policy makers would come up with measures to prevent a sovereign debt default that could potentially trigger a Lehman Bros.-style financial shock, including by pumping more money into the region’s banks. Markets, particularly commodities, have also been on edge about whether inflation-fighting efforts in China could lead to a hard landing in that economy, spurring a global slowdown.

Such concerns about China were alleviated by preliminary data from HSBC showing that an index of manufacturing conditions in China climbed to a five-month high in October. The so-called flash Purchasing Managers’ Index showed the sector in expansion versus a contraction in September. Read more on China flash PMI.

In Monday’s trading, crude-oil futures for December delivery
CL1Z
jumped $3.87 to finish at $91.27 a barrel on the New York Mercantile Exchange. Read more on crude-oil futures.

“There is still some hesitancy or tentativeness moving forward until at least later this week, until we get some answers out of Europe,” said Robert Pavlik, chief market strategist at Banyan Partners LLC.

“But you never know what will happen... the markets might sell off on the news, especially if the details of the plan are a little bit less than expected,” he said.

The strong results show “corporate earnings are still there [and that] companies can still make money in this economy,” Banyan Partners’ Pavlik said, but added that the strong earnings weren’t translating into new jobs.

Buyout binge

News related to mergers and acquisitions also spurred buying, with shares of RightNow Technologies Inc.
RNOW
jumping 19% after Oracle Corp.
ORCL, -0.92%
said it will acquire the customer-service software developer for $1.5 billion. Oracle shares added 2.3%. Read more about the acquisition.

Shares of Mattel Inc.
MAT, +3.34%
rose 2.1% after the toy maker said it will pay $680 million in cash for Hit Entertainment, a closely-held producers of preschool brands including Barney and Bob the Builder.

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